1. You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $4.3 million and would be depreciated straight-line to zero over four years. Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for $1.275 million per year for four years.
a. Assume that the tax rate is 21 percent. You can borrow at 8 percent before taxes. Should you lease or buy?
b. What are the cash flows from the lease from the lessor’s view point? Assume a 21 percent tax rate.
c. Assume that your company does not contemplate paying taxes for the next several years. What are the cash flows from leasing in this case?